The glass is likely to be more than half full for India’s retail sector in 2021
By Rachit Mathur
Late last year, BCG’s retail leadership co-created a vision for the future of retail. We crystal-gazed how it will be shaped by consumer expectations anchored around seamless interactions with brands and products, customisation, next-gen convenience and responsible consumption. Candidly, I felt this was some time away for India, and would require significant demand and supply-side evolution. However, within a year, Covid-19 has accelerated that vision and brought it within reach. The pandemic has changed the ‘consumer ask’ and altered the way they spend and shop. This shift in consumption behaviour is engendering opportunities for retailers to redesign their offerings in order to optimally meet consumer expectations.
Changing consumption trends
For grocers, the imperative has been to tap the changing shape of food demand. Key changes such as increased cooking at home, higher emphasis on health and hygiene, new price-purpose equation across categories, and enhanced digital exposure offer food retailers unique differentiation opportunities. We believe that almost a third of the world’s food trade will change hands, as retail channels realign to these shopper behaviour changes. The focus now is to recover footfalls through a refreshed, contemporary proposition and experience. Further, the Reliance-Future consolidation can significantly disrupt the landscape once regulatory clarity emerges and the pace of integration becomes clearer.
For discretionary category retailers, the pandemic happened at an inopportune time. Saddled with fresh inventory, retailers have had to make multiple changes mid-air. Focus has been on reducing operational costs, correcting inventory, and ensuring float in the balance sheet. Leading retailers like AB Fashion and Arvind raised sizeable capital through rights issues as well as through non-traditional strategic investors. Compounding the challenges are the changing preferences of consumers. Online shopping, virtual brand interactions, wardrobe shifts towards casuals and essentials, and looking for product/style inspiration from the larger social world are now becoming the norm. The current attention is to bring back category traction and retail footfalls anchored deeply around omnichannel models.
The ‘e’ disruption
E-commerce and delivery-led businesses have witnessed a steady trajectory back to growth. Riding on an over-supportive supplier base and active consumer communication about value chain hygiene, e-tailers have gained market share. Most FMCG companies have, at least, doubled their e-commerce business (the channel is now 5-6% of organised FMCG), and marketplaces are now the largest customers for leading footwear brands. A significant shift in India’s media consumption led by OTT and video has amplified a set of engagement vectors for digital marketers.
A disruption is imminent in the e-enabled organised wholesale space which will ‘enable kiranas at scale’. With traditional trade being the majority of India’s trillion-dollar retail market, even a decade from now, this association with leading eB2B players can have significant upsides. Players such as Flipkart wholesale and Reliance are expected to rapidly formalise distribution across categories — driving efficiencies and, potentially, a shift in the profit pool between the manufacturer and channel.
Looking forward, the glass is likely to be more than half full. Demand will make a slow comeback and large surviving retailers will have lighter balance sheets and cost structures to stand ground. Ensuring that these inefficiencies do not sneak back is imperative. For grocers, agri reforms may open a set of interesting opportunities to structurally improve their customer offering and profitability. Retailers are well positioned to drive the narrative around socially right and responsible consumption, while also owning “properties” around local/ traditional products and ethical sourcing practices. The digital impact of marketing, influence, and commerce will gain further currency, creating differentiated partnership opportunities and unconventional competition.
External disruption has highlighted that operating activities of demand sensing and supply planning can be done with dramatically lower lead times and higher accuracy. For the retailing ecosystem, institutionalising these as the ‘new normal way’ of organisational working will be key. Lastly, retailers will need to think through their ‘right to co-exist and flourish’ in a market with some very large channel players.
A colleague told me to always test if my clients were thinking and acting to double value in five years; else, without making a choice, they may not be in business in five years. While the path towards value creation is clear, the road is hard; it’s time the tough get going.
The author is MD & partner, India lead – consumer and retail practice, BCG